A place to exercise ideas before writing about them with greater discipline.

Friday, May 13, 2011

Bernanke Plays the Fear Card (repost)

[Posted a second time, since the first appears to have been lost by the Blogger outage.]

Whatever anyone may say about the personal motives of Federal Reserve Chairman Ben Bernanke, it is safe to conclude that a wholesale failure of the American economy is no more in his best interests than it is for those of us who are not “high rollers” in that economy. Thus, he has little tolerance for Republican ideologues who probably know little, if anything, about any prevailing economic theories (whether they involve the “free markets” of Milton Friedman or the Keynesian principle of regulation), preferring to incant the evils of taxation, following the mindless four-legs-good-two-legs-bad thinking ridiculed in George Orwell’s Animal Farm. Ideology is, of course, robustly immune to the argumentative discipline of refutation; and, testifying this morning before a Senate committee examining progress on the Dodd-Frank financial regulation law, it was clear that Bernanke appreciated these limitations of logic.

Thus, when the discussion turned to the question of raising the debt ceiling, Bernanke could not ignore the intentions of House Majority Leader John Boehner to hold decision-making hostage to further draconian cuts in government spending. Here is the key excerpt from his Senate testimony as reported by BBC News:

It is a risky approach not to raise the debt limit in a reasonable time.

The worst outcome would be one in which the financial system was again destabilised as we saw following Lehman, for example, which would of course have extremely dire consequences for the US economy.

In other words when all else fails, play the fear card. Most voters probably did not have a direct stake in the Lehman Brothers collapse; but they are smart enough to see it as one of the dominos that fell when the national economy (and, for that matter, the global economy) went south. Bernanke did not have to call out Republicans for not having given enough thought to economic recovery. He could just haul out a convenient bogey man and hope that voters (even those in the TEA Party) would get on their respective representatives cases about the dangers of making things worse than they already are. Perhaps this is one of those cases when reasoning by fear will be more beneficial than reasoning by logic, particularly when the logic is as convoluted as it is!